Question 1

Define protectionism and identify the industries that are typically protected.Explain the "infant industry" argument for protectionism.

Accepted Answer

Protectionism is defined as the attempt by a national government to protect certain of its designated industries from foreign competition.Industries that are protected are usually related to defense,agriculture,and "infant" industries.
The traditional protectionist argument is that newly emerging,"infant" industries need protection from foreign competition until they can get firmly established.The infant industry argument is usually directed at limiting imports,but not necessarily MNEs.In fact,most host countries encourage MNEs to establish operations in new industries that do not presently exist in the host country.Sometimes the host country offers foreign MNEs "infant industry" status for a limited number of years.This status could lead to tax subsidies,construction of infrastructure,employee training,and other aids to help the MNE get started.Host countries are especially interested in attracting MNEs that promise to export,either to their own foreign subsidiaries elsewhere,or to unrelated parties.

Question 2

________ risks are those that affect the MNE at the local or project level,but originate at the country level.

Accepted Answer

A)   Country-specific
B)   Firm-specific
C)   Global-specific
D)   none of the above A

Question 3

What are the traditional methods for countries to implement protectionism? What are some typical non-tariff barriers to trade? How can MNEs overcome host country protectionism?

Accepted Answer

The traditional methods for countries to implement protectionism are tariff and nontariff barriers.
Nontariff barriers,which restrict imports by something other than a financial cost,are often difficult to identify,because they are promulgated as health,safety,or sanitation requirements.
MNEs have only a very limited ability to overcome host country protectionism.However,MNEs do enthusiastically support efforts to reduce protectionism by joining together in regional markets.The best examples of regional markets are the European Union (EU),the North American Free Trade Association (NAFTA),and the Latin American Free Trade Association (MERCOSUR).Among the objectives of regional markets are elimination of internal trade barriers,such as tariffs and nontariff barriers,as well as the free movement of citizens for employment purposes.External trade barriers still exist.

Question 4

________ is the ability to exercise effective control over a foreign subsidiary within a country's legal and political environment.

Accepted Answer

A)   Political risk
B)   Portfolio risk
C)   Interest rate risk
D)   Governance risk

Question 5

________ is a type of political risk that OPIC does NOT cover.

Accepted Answer

A)   Inconvertibility
B)   Expropriation
C)   War
D)   OPIC covers all of the above.

Question 6

MNEs that are resident in liquid and unsegmented capital markets are more likely to be able to demonstrate financial strength by achieving and maintaining a global cost and availability of capital.

Accepted Answer

A) True 
 B)False

Question 7

Forming regional alliances is one way to help mitigate the practice of government protectionism.Which of the following is NOT a regional trade organization formed by government treaty?

Accepted Answer

A)   EU
B)   NAFTA
C)   NATO
D)   MERCOSUR

Question 8

According to the Boston Consulting Group gloabl challengers are companies based in rapidly developing economies that are "shaking up" the established economic order.

Accepted Answer

A) True 
 B)False

Question 9

The O in OLI refers to an advantage in a firm's home market that is:

Accepted Answer

A)   operator independent.
B)   owner-specific.
C)   open-market.
D)   official designation.

Question 10

A number of institutional services provide updated country risk ratings on a regular basis.This is an example of micro-risk information for MNEs using this data.

Accepted Answer

A) True 
 B)False

Question 11

Local partners in a foreign country and in a joint venture with an MNE are likely to make decisions that maximize the value of the subsidiary.Such actions probably will not maximize the value of the entire firm.

Accepted Answer

A) True 
 B)False

Question 12

With licensing the ________ is likely to be lower than with FDI because of lower profits; however,the ________ is likely to be higher due to a greater return per dollar invested.

Accepted Answer

A)   IRR; NPV
B)   NPV; IRR
C)   cost of capital; NPV
D)   IRR; cost of capital

Question 13

Which of the following is NOT a form of FDI?

Accepted Answer

A)   wholly-owned affiliate
B)   joint venture
C)   exporting
D)   greenfield investment

Question 14

Which of the following is NOT an example of a country-specific risk?

Accepted Answer

A)   transfer risk
B)   war and ethnic strife
C)   cultural and religious heritage
D)   All of the above are examples of country-specific risk.

Question 15

Which of the following is NOT a typical characteristic of a fronting loan made to an international subsidiary?

Accepted Answer

A)   The parent makes a deposit equal to the size of the desired loan into a large commercial bank.
B)   The bank lends to the subsidiary firm an amount equal to the parent deposit at a slightly higher interest rate.
C)   The lending bank is located in the subsidiary's country.
D)   All of the above are typical characteristics of a fronting loan.

Question 16

A strongly competitive home market tends to dull the competitive advantage relative to firms located in less competitive home markets.

Accepted Answer

A) True 
 B)False

Question 17

According to the Boston Consulting Group analysis gloabl challengers have been able to have both volume and margin.

Accepted Answer

A) True 
 B)False

Question 18

When faced with additional risk from a foreign investment,firms typically account for the additional risk by adjusting the discount rates or by adjusting cash flows.

Accepted Answer

A) True 
 B)False

Question 19

Of the following,which would NOT be considered an issue for an investment agreement prior to investing in a foreign country?

Accepted Answer

A)   the basis for setting transfer prices
B)   the right to export to third-country markets
C)   provision for arbitration of disputes
D)   All of the above could be negotiated prior to investing.

Question 20

All of the following may be justification for a strategic alliance EXCEPT:

Accepted Answer

A)   takeover defense
B)   a joint venture to pool resources for research and development
C)   joint marketing and serving agreements
D)   All of the above are legitimate reasons for strategic alliances

Exam 17: Foreign Direct Investment and Political Risk

Define protectionism and identify the industries that are typically protected.Explain the "infant industry" argument for protectionism.

________ risks are those that affect the MNE at the local or project level,but originate at the country level.

What are the traditional methods for countries to implement protectionism? What are some typical non-tariff barriers to trade? How can MNEs overcome host country protectionism?

________ is the ability to exercise effective control over a foreign subsidiary within a country's legal and political environment.

________ is a type of political risk that OPIC does NOT cover.

MNEs that are resident in liquid and unsegmented capital markets are more likely to be able to demonstrate financial strength by achieving and maintaining a global cost and availability of capital.

Forming regional alliances is one way to help mitigate the practice of government protectionism.Which of the following is NOT a regional trade organization formed by government treaty?

According to the Boston Consulting Group gloabl challengers are companies based in rapidly developing economies that are "shaking up" the established economic order.

The O in OLI refers to an advantage in a firm's home market that is:

A number of institutional services provide updated country risk ratings on a regular basis.This is an example of micro-risk information for MNEs using this data.

Local partners in a foreign country and in a joint venture with an MNE are likely to make decisions that maximize the value of the subsidiary.Such actions probably will not maximize the value of the entire firm.

With licensing the is likely to be lower than with FDI because of lower profits; however,the is likely to be higher due to a greater return per dollar invested.

Which of the following is NOT a form of FDI?

Which of the following is NOT an example of a country-specific risk?

Which of the following is NOT a typical characteristic of a fronting loan made to an international subsidiary?

A strongly competitive home market tends to dull the competitive advantage relative to firms located in less competitive home markets.

According to the Boston Consulting Group analysis gloabl challengers have been able to have both volume and margin.

When faced with additional risk from a foreign investment,firms typically account for the additional risk by adjusting the discount rates or by adjusting cash flows.

Of the following,which would NOT be considered an issue for an investment agreement prior to investing in a foreign country?

All of the following may be justification for a strategic alliance EXCEPT: